Withholding of Income Tax refund mere due to issue of Scrutiny is not valid

Conner Institute of Health Care And Research Centre Pvt. Ltd. Vs ITO (Delhi High Court)

The exercise of withholding of refund under section 241A of the Act, pursuant to notice u/s 143(2) of the Act, without recording justifiable reasons, is not in consonance with the legislative intent and mandate of the aforesaid provision. The reasons cited do not support the finding that refund would adversely affect the Revenue. In view of the aforesaid, we hold that the reasoning given by the Income-Tax Officer is contrary to Section 241A of the Act. Accordingly, we set aside the impugned communication/ order dated 10.01.2020. We, therefore, grant three weeks’ time to the respondents to re-consider the aspect whether the amount found due to be refunded, or any part thereof, is liable to be withheld under Section 241A in line with the decisions of this court as noted above. The entire consideration, with the approval of the Principal Commissioner of Income Tax to the withholding of the refund amount, or any part thereof, should be completed within three weeks from today, failing which, we direct that without awaiting any further orders, the respondents shall transmit the amount of refund determined under section 143 (1) of the Act alongwith interest to the petitioner. In the eventuality of the respondents recording any reasons for withholding a part thereof, or the entire amount due for refund to the petitioner under Section 143(1), the reasons thereof as approved by the Principal Commissioner of Income Tax shall be provided to the petitioner forthwith. It shall be open to the petitioner to take remedial steps in respect of any orders for withholding of refund that may be passed. Needless to state that the reasons recorded for withholding of refund under section 241A would only amount to a tentative view and would not come in the way of the Assessing Officer to frame the assessment under section 143(3) of the Act.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. The present writ petition under Article 226 of the Constitution of India inter alia seeks mandamus for directing the respondent to grant refund as determined under Section 143(1) of the Income Tax Act (‘the Act’).

2. Petitioner, a company providing hospital services to the general public, filed its return of income for the Assessment Year (‘AY’) 2018-19 on 29^th October, 2018 claiming refund of Rs. 1,43,48,810/- on account of excess deduction of tax at source. Revenue selected the case of the petitioner for limited scrutiny under Section 143(2) of the Act vide notice dated 22^nd September, 2019. Subsequently, the ‘Centralised Processing Centre’ processed the return of income vide order dated 12^th November, 2019 under Section 143(1) of the Act which resulted in refund of Rs.1,57,83,688/-. However, since the said refund was not granted, petitioner submitted various representations dated 29.11.2019, 16.12.2019 and 17.12.2019 in this respect. Thereafter, in a personal hearing granted to the petitioner, it was informed that the refund had been withheld under Section 241A of the Act. Neither the copy of the order nor the reasons for withholding the refund were provided to the petitioner and accordingly, the present writ petition has been filed seeking directions in this regard. During the course of hearing, the reasons for withholding the refund were provided to the petitioner and consequently, the writ petition was amended to assai the order dated 10^th January, 2020 whereby the refund has been withheld.

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